Wednesday, January 30, 2008

The Fed Is Crazy

Just in case you wondered. Faced with an economic crises caused largely, IMHO, by the inability of the general populace to pay the debts they have now, the Fed's response has been: to make it even cheaper to borrow money! They've now dropped the fed funds rate by an entire percent, from 4% to 3%, in 2 weeks - four months ago it was 5.25%! That's almost a 50% drop!

As for the bipartisan stimulus package we heard so much about, that was before it got to the Senate. The senate thinks the elderly should get the rebate too - oh, and we can't leave out the rich people... We should leave out the rich people. Actually we shouldn't do this at all, it will have minimal effect and is an extended exercise in CYA. And if the Senate is allowed free rein by the party leaders, we won't do it, because the House won't sign off on the changes. So maybe the Senate's insistence on rewriting the package is a good thing.

The House's idea wasn't bad, actually - apart from the fact that the money won't get to people soon enough to make a difference, and that it won't go to new spending anyhow. I can't recall where I read this, but someone did a survey on the lines of "if you had $X hundred right now what would you do with it?" The general assumption is that poor people spend and rich people save - the response to this survey was that something over 40% of poor people said they would pay down debt with it, and another 20% said they would sock it away. None of which would do a thing for the economy.

But the Fed and its rate cuts - it's the old saying: to a man with a hammer, every problem looks like a nail.

Thursday, January 24, 2008

Seven Billion Dollars

I read the Economist every week with pleasure for its interesting analyses, but it isn't often that I get breaking news from it. I did today, though, because the Economist web site was where I first saw the financial scandal that is today's big business headline: the rogue trader at Société Générale who managed to blow $7.2 billion dollars gambling in stock market futures. They didn't call it "gambling." (Since the Economist quoted it in euros, where it's €4.2 billion, I didn't realize the full size until I saw it on Yahoo News. The Yahoo article has more detail.)

This is a 31 year old stock market futures trader, working for
Société Générale, who essentially built his own "play" firm, inside the larger bank, and set out to make a big hit trading stock futures on his own account. He made a big hit, all right. And until last Saturday, nobody at SocGen realized he was doing it. He built a whole structure of faked transactions to cover what he was really doing, using the experience he got a few years ago when he worked in the section of the bank that monitors the trading floors for rogue operations.

Don't they supervise these people?? Does nobody have to sign off on these trades??

It's not as if it weren't a known risk, either. There've been other rogue traders. These guys are total cowboys, and they're convinced that it can't happen to them, and the next thing you know, a bank has gone out of business (see the 1995 affair when a rogue trader in Singapore bankrupted Barings Bank, a 250 year old British firm).

I wonder how long
Société Générale will be around... Second biggest bank in France. Quite a coup to bring it down - if that's the way you want to keep score.

Wednesday, January 23, 2008

How Can We Miss You If You Won't Go Away?

Like many of my acquaintance, I'm counting the days until the end of the Bush presidency, although I haven't gone as far as to install the countdown widget on my blog or web site. But I will breathe a huge sigh of relief when the new president is sworn in in January 2009, almost no matter who it is. (Well, maybe not Huckabee. I'd prefer someone who believes that the earth is round.)

I was appalled, therefore, to read today an article in the Entertainment section of the S.F. Chronicle stating that Oliver Stone is trying to get backing for - wait for it - a movie on the Bush presidency!

What an awful idea. I can't stand to look at the man, or listen to him talk, for more than about 30 seconds now; and Stone wants to direct an entire movie about him??

In case you were wondering who he wants to portray Bush in the movie? Josh Brolin. (This means nothing to me, as Josh Brolin has never appeared in any movie I wanted to see; and it sounds as though his record will continue unbroken.)

My only hope is that, if the movie is made, it'll be a total flop. Certainly the presidency is.

Hair Of The Dog That Bit Us

So - the economy is tanking because the American Consumer's debt burden has finally become overwhelming, and the Federal Reserve's solution to this problem? Make credit cheaper! The Federal government's solution to this problem? Give everybody a tax rebate (except for poor people who don't pay taxes; I'll get to that later), so they'll go out and buy more stuff and prop up the economy!

I guarantee, that if your house is in foreclosure because your $3500 mortgage payment is over 80% of your take-home pay, an $800 tax credit is not necessarily going to cause you to go out and buy something.

Of course, I don't carry credit card debt myself, so my reaction to this may be unusual, but if I had a major debt burden, and I suddenly got $800, my impulse would be to pay something down. I don't think people are doing this yet; I'm reading that they're missing payments on their credit card debt as well as on their mortgages.

This whole economic problem has been caused, IMHO, by running the economy on credit for 40 years (which is about how long we've had credit cards). Everybody says, oh, the world economy is driven by the American Consumer. Guys, the American Consumer is broke. Stony. Maxed out. If you can't pay off the debt you have, making new debt cheaper Will Not Help You. I read one comment that the recent rate cut would make some mortgage resets smaller, so they might only go up $150 instead of $500 a month. Yeah, but if you're already behind on the payments, if you already can't afford the mortgage, making the reset smaller is not a significant improvement.

I remind myself again and again that 90% of the news is made by 10% of the people, but still. I read over and over again about people who've owned their houses for many years, and are now about to lose them because they've refinanced them to take out cash, over and over, and now they can't pay the mortgage, can't refinance because the house value is less than they owe, and can't sell because the market is in the tank. They're going to lose the houses they should have been able to die in, because they over-borrowed. In 1976, the supporters of California's Proposition 13 made a big deal that older people were going to lose their homes because of rising property taxes. Some of the people that are going to lose their homes to foreclosure now are those people; and no constitutional amendment will help them. They did this themselves.
This is running the world on credit, and the bills have come due.

Are we having a recession?? Damn straight we are. Is the rate cut going to help? Not a chance. Frankly, I think the rate cut was a major mistake. Low interest rates are what got us into this mess. If we're not really careful, low interest rates will dump us back into the 70's, a decade I have no desire to rerun, especially as a retiree. Inflation is ticking up just as oil and food prices spike and job creation essentially vanishes; does all this sound familiar? I'm sorry, the European Central Bank is correct here: they just refused to cut rates on the grounds that their primary focus is to keep inflation under control. Ben Bernanke should try to remember that.

Oh, yes, and the tax rebate issue. It's amazing how consistent Dubya is. He wants to restrict tax rebates to people who actually paid taxes, which basically eliminates anybody with children making less than about $75K. (Don't hold me to these numbers. But it's a LOT of people.) In other words, as usual, Dubya wants to give tax help only to people who don't actually need it.

Friday, January 11, 2008

Phone Bills

It's not polite to display schadenfreude publicly, but I can't resist this one. Remember all those wiretaps that the FBI insisted were so critical to national security and the GWOT that they couldn't even defend them in court, because the information was so sensitive?? The ones where Dubya wants Congress to give the phone companies immunity from any possible prosecution, in case the whole thing should someday be judged unconstitutional or even illegal?

Well, it turns out there is something that will cause the phone companies to refuse to support the government's wiretap program.

The FBI didn't pay the phone bill. So, the phone companies disconnected the wires, in some cases shutting down wiretaps on ongoing FISA investigations.

And we're not talking pocket change, either: A Justice Dept. audit found that the unpaid bills to one phone company, from one FBI office, ran to $66,000! The article didn't give any overall totals. The information is probably classified.

If I actually thought the FBI was doing something useful to defend us against terrorists, or anything else, I might worry about this.

The audit found that the FBI's controls over the cash used to fund undercover operations are so sloppy that one FBI employee was able to steal $25,000. (Piker. If they're so loose, he should have been able to nick much more than that.)

Who is running this country, anyhow? The Keystone Kops? The Three Stooges?

The Legacy

Here we go again. Dubya is trying to "secure his legacy" again, this time by making peace between the Israelis and the Palestinians. By the end of his term. In one year. An article this morning from the Cox News Service quoted him as saying he will "be a pain if I need to be a pain." Believe me, Mr. President - you are a pain.

First his legacy was going to be Iraq: depose the dictator, create a free democracy in the Middle East. (All planned by a staff with no Arabic speakers and no Middle East experience.) Then, when Iraq turned into a swamp, his legacy was going to be privatizing Social Security. Well, that went over with the voters like a solid gold parachute, despite what I have to admit was real work on his part - he stumped for that disaster all over the country. Now he's tackling a festering feud that's been going on for either 40 or 60 years, depending on whether you count from the founding of Israel in '48 or the Six Days War in '67; and he thinks he can mop it up in just under 12 months.

Have we got a president with ADHD? Or is he merely delusional?

There's an old mis-quote of Rudyard Kipling that I think applies here: "If you can keep your head when those about you / Are losing theirs and blaming it on you - / You haven't really grasped the situation yet."

Hey, if he can pull this off, and produce an agreement between Israel and Palestine that actually works and stops the shooting, his legacy will be written in gold - and I won't even argue. I just don't think much of his chances.

Friday, January 04, 2008

The Great Storm of '08

At least, I hope this is the biggest one; oops, the lights just flickered. Power's on now, but not for about 300,000 people elsewhere; and it was off when we got up. We're in the second of three storms, here, and the Bay Area is essentially closed due to weather. Some of it - the Richmond-San Rafael Bridge, for instance - is actually closed. Also Golden Gate Transit bus and ferry service - you have to drive to get from Marin to S.F., and watch the roads for flooding. And don't even think of flying into or out of SFO today.

Winds over the bay are gusting to 70 MPH (80 MPH in Los Gatos); they closed the Richmond Bridge, if I heard the traffic report on KQED FM correctly, when a Safeway delivery truck blew over onto a fire truck. The article doesn't mention the fire truck. BART is mostly functional except in western S.F. where a tree blew down over the tracks and a train hit it. The National Weather Service has issued every weather advisory they have except tornado: small craft, high wind, high surf, flash flood watch, flood warning.

It isn't just the Bay Area either - the Sierras are expecting up to 10 feet of snow in one storm, and they've forecast 100 MPH winds. This would NOT be a good weekend to drive up to Tahoe for the skiing.

Honest, I've lived here all my life, and I've only seen maybe 5 storms of this magnitude; this is crazy stuff. I know we need the rain, but yikes!

U.S. Dollars

Yahoo News has a small article today to the effect that the Taj Mahal, in India, no longer accepts entrance fees in U.S. dollars. You have to pay 290 rupees; you can't just give them a five dollar bill any more. This is presented as a "troubling sign for the U.S. dollar," although in fact the dollar has dropped so far against the rupee that it's cheaper to pay in rupees.

Well, tadda-wadda. Tough bananas, guys. I'm not the world's great foreign traveler; but when I travel overseas, I carry and use the local currency. That, or credit cards. It is the height of arrogance for Americans to travel to another country and expect local merchants and tourist sites to accept American currency, in practice forcing the merchant to bear the expense of currency conversion. Grow up and learn to be world citizens, folks; it isn't that hard.